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Oregon non-competition law is about to change.

Although there are many changes coming Jan. 1, two are especially significant: Non-compete agreements will only be valid if the covered employee is exempt from overtime, and employees must be informed of non-compete requirements at least two weeks before they start work.

For employers that have historically relied on non-compete agreements, these requirements effectively preclude their use. These employers will be left wondering how to protect themselves from departing workers. However, even without non-competes, options are still available.

In addition to narrowing the scope of enforceable non-competes, the Jan. 1 changes remove non-solicitation agreements from the definition of what constitutes a non-compete agreement. Until now, Oregon courts have held that non-solicitation agreements are the same as non-competes. Accordingly, non-solicitation agreements – deals with employees not to solicit customers, suppliers or other employees upon their departure – are, like non-competes, only valid if signed within the first three days of work or upon a “bona fide advancement” – a significant promotion involving an increase in title, pay and duties.

By specifically removing non-solicitation agreements from the statute, the amendment allows employers to require workers to execute non-solicitation agreements without regard to how long ago they were hired or whether they’re being promoted. 

The Oregon Trade Secrets Act is another option for employers. The act precludes former employees from using or disclosing their employer’s trade secrets, which are defined as information that derives independent economic value and is subject to reasonable efforts to maintain its secrecy. Although the standard of proof is higher on a Trade Secrets Act claim than on a contract claim, if the employer can show that the former employee’s actions were willful and malicious, the act allows for the recovery of triple damages and attorney fees, in addition to injunctive relief.

By limiting the former employee’s ability to use the specific confidential information he or she had access to during employment, the act provides employers with a degree of protection they might previously have gained from non-competes. In fact, a properly worded non-solicitation agreement, coupled with the Oregon Trade Secrets Act, can approximate the protection the employer had with a non-compete agreement.

A non-compete is generally justified as a way to protect an employer’s assets by preventing a former employee from going across the street to compete against it while knowing all of the employer’s inner workings, processes and customers. However, as discussed above, a non-solicitation agreement can be used to stop the former employer from contacting the employer’s customers, current employees and, in certain circumstances, suppliers. And the Trade Secrets Act prevents the former employee from using or sharing the employer’s unique programs, processes, techniques, methods and customer lists. If the employer successfully uses both of these tools, there’s little damage a former worker can do.

However, successful use can be difficult.

In non-compete litigation, the issues are simple. Was there a valid non-compete? Did the former employer go to a competitor? The first issue is simply a legal question; the second issue is straightforward from a proof standpoint.

But to enforce a non-solicitation agreement, an employer must be able to prove that the former employee targeted its customers and that it suffered damages as a result. This can be difficult. Customers that leave likely won’t want to help prosecute someone they’re now taking their business to. So even if the employer suffered damages from that customer’s departure, it’s hard to get the customer to admit to the solicitation. Even if it does, the customer generally argues it would have left anyway. And customers that don’t leave might be happy to tell you about the solicitation, but you’ll have a hard time proving damages occurred.

Moreover, from a business standpoint, most employers don’t want to drag their customers into messy litigation. Similarly, while the Trade Secrets Act provides protection, it’s difficult to enforce because of the standards of proof.

While much of the protection of a non-compete can be replicated on paper with a non-solicitation agreement and the Trade Secrets Act, enforcement is a challenge. For this reason, employers that can meet the new requirements should still use non-competes.

Mitch Baker is of counsel at the Portland office of Fisher & Phillips and specializes in labor and employment law and employment discrimination. Contact him at 503-242-4262 or [email protected].